Key Reasons for rejection of business loan application:

Running a small business in India is very tough. The increasing competition, low-
profit margins, and innovative business models are making it tough for small
businesses to stay afloat. There could be a scenario where your small business may
need additional funds. Thisis known as a small business loan that is required to
meet your business goals.
It is estimated that over 63 million micro, small and medium enterprises (MSMEs)
were operational in India in FY21. The Indian MSMEs contribute close to 29% to
Indian GDP and 40% to exports from India. Since these companies are making a huge
contribution to the economic landscape of the country, several lenders have started
to offer small business loans to meet their fund requirements.

Business loan approval considers multiple parameters and a loan application may
stand a chance of being rejected in case any of these are not met. The ideal way to
manage business loan rejection is to conduct thorough research of the reasons
behind it and to look for ways to rectify them. This way, the applicants will be
better prepared to make the next business loan application. Let’s understand more
about possible reasons for business loan rejections and ways to avoid them. 
Common Reasons why your Business Loan May have Been Rejected
Here are some of the top reasons why your business loan may have been rejected:
Poor Credit Score - the credit score of your business is reflective of the
creditworthiness of your business. A high credit score indicates good budget
management, effective expense controls and responsible handling of debts. If a
business has a poor credit score, it most likely lacks financial prudence and
appropriate planning. 
Tips to Improve this Factor
Before making a business loan application, it’s mandatory for a business to check
for its latest business credit score. One of the common reasons for business loan
rejection is a high credit percentage in the business’s capital. An ideal credit
percentage is something that ranges around 30% of the maximum available credit. Try
to work on improving your credit score before you apply for a business loan. 
Cash Flow Issues – A business’s cash flow analysis reflects its capability of
repaying the loan after considering the operating expenses. Lack of cash flow
availability can affect lender confidence in the business. 

There are some very standard and quite common reasons for business loan rejections.
Expect that it might be one of the following: 
Common business loan rejection reasons
• Poor credit
• Bad ratios
• Incomplete financials
• Quality of cash flow 
• Insufficient collateral
• Too much debt
• Not enough credit history